tv Nightly Business Report PBS January 17, 2013 6:30pm-7:00pm PST
captioning sponsored by wpbt >> this is n.b.r. >> susie: good evening everyone. i'm susie gharib. boeing is grounded. regulators around the world tell boeing to park its troubled dreamliner. so what's next for boeing customers, and investors? >> tom: i'm tom hudson. from a pickup in housing, a drop in unemployment, and strength in manufacturing, has the u.s. economy has finally turned a corner? >> susie: and messy earnings news from two giant banks: a big earnings miss from citigroup, and a big earnings drop at bank of america. investors dump the stocks. >> tom: that and more tonight on "n.b.r."! >> susie: hundreds of flights were canceled today and airlines rushed to make back-up plans after regulators around the world grounded boeing's 787 dreamliner.
those actions came after the federal aviation association ordered the plane out of the air after two incidents where lithium ion batteries overheated. boeing says it is confident the 787 is safe and says it stands behind the plane's overall integrity. this is only the second time in more than 30 years that regulators have grounded a plane. darren gersh reports. >> reporter: boeing has spent more than $30 billion developing the 787 dreamliner. one reason for the high cost is boeing's decision to upgrade the hydraulics and other mechanical systems with next-generation technology that runs on electricity. >> you've got generators on board the aircraft that are powering the systems directly with electricity. that, of course, means a lot more juice is flowing through the plane. it also means you need more powerful batteries as backup systems. >> reporter: investigators from the federal aviation administration and national transportation safety board are working with their counterparts in japan to try to determine
whether a manufacturing defect caused the battery in an all nippon airways 787 to burn up. if that proves to be the case, boeing may find the fix is straight forward. but if the problem is the lithium battery technology itself, boeing faces a more difficult engineering challenge. >> lithium ion batteries have a lot of power and of course there are many types of batteries out there and hopefully a substitute can be found, but nothing is absolutely set in stone at this point. >> reporter: boeing might be able to design a container to prevent or protect fires caused by the lithium batteries. but if the company is forced to use older, larger batteries, engineers would have to re- design parts of the 787. investigators have reached no conclusions, but they will certainly be taking a hard look at every aspect of the 787's battery. >> i think that the amount of problems there have been with lithium batteries historically would have to lead one to
believe that you're not going to certificating an airplane, you're not going to just say this was a bad batch, bring on the next batch until somebody figures out that it was a bad batch and why it was a bad batch and what you do about it. >> reporter: investigators are quick to point out they have reached no conclusions in their investigation and will look at all the possible causes of the 787's battery failures. the f.a.a. hopes to develop a plan to correct the problems as quickly as possible. deliveries of the 787 dreamliner are already three years behind schedule. darren gersh, "n.b.r.," washington. >> carter lee is an aerospace analyst with bb&t ,virginia.rkets joining us carter, you were out early today cutting your investment recommendation on boeing's stock from hold to underweight, essentially a sell y? >> well, so you know, starting from the hold which we put on right after the initial fire we felt that the risk to the name given we knew an investigation
would ensue was sufficient to go to the hold. and last night with the faa issuing a grounding order which was somewhat suspected but what i saw in that release was that we don't actually have the root cause yet so it is open-ended enough that we felt that it was probably better that we step to the sideline given what we don't know. >> let's talk about the position that boeing is in to withstand or maybe not withstand the long investigation to credit rating agencies both s&p and fish today said the company has the financial ability to handle problems at least for now with the 787. boeing has more than 11 billion in cash, available credit to it and more than 4.5 billion. so do you have financial concerns at this point? >> no, i mean if you look at boeing's other platforms, the legacy, 737 and triple 7 platforms, both higher margin high cash generators, those platforms are also increasing in production which is providing the offset to the 787, which right now is a cash strainer but the market knows that. >> to that point, the 737
there are more than 2800 orders for those planes that have been flying obviously for years compared to 800 for the 787 s so that 737 really still is the moneymaker, the driver of earnings, isn't it? >> it s the 737 and the triple 7 wide body are the real moneymakers for boeing. and if you look at the backlogs on the 737, you know, at current rates, it's almost six years. >> right. >> lots of big global demand for the 737 plane put 787 represented a lot for boeing, didn't it. it really was the new technology in place, the new energy savings for global airlines and on pace to double the number of dream liners it delivered it year. started out in 2011 which was already late with just 346 last year, more than 80 this year. with this uncertainty what kind of threat to its earnings gross potential. >> it's interesting. when you talk about the dream liner and boeing, when you talk about earnings over the next two years, most analysts have this booked at
zero margin so from an eps perspective there is really no impact from a revenue going forward it will be around 20% of revenue, so the story for boeing is not necessarily earnings, it's cash generation so, the market is looking for, you know, when will the 787 turn cash positive versus accounting positive. and so that before all of this was a number sort of late 2014, 2015. >> so you have gone to sell here with boeing shares trading in the low 70s with this kind of headline risk call, not necessarily a financial concern. at what point would boeing share price present just a compelling value would you have to buy it? >> well, for us, you know, i think probably a starting point. we'll have to-- there's not a lot of information out there so as we sort of read the tea leaves from what the faa says how quick a fix this could be. but our read right now would probably be in the mid 60s where we would probably get interested again.
>> all right, another 10 or-- 10 or 12% lower. do you have any position in the shares long or short at all? >> i do not. >> all right, carter leake on boeing, cart certificate with bb & t capital markets. >> susie: still ahead, from the "gimmies," to "i-need-it-now," teaching your kids better money habits. it's tonight's "kids and cash." two dynamic readings on the u.s. economy energized the stock market today. the dow jumped 85 points, the nasdaq added 18, and the s&p gained eight points. here's what inspired investors to buy stocks: housing starts surged more than 12% last month, hitting the highest level since june 2008. permits for future home construction were also the strongest in more than four years. the upbeat december performance echoes other recent measures on housing. and, there was also good news on the labor front: jobless claims fell last week to the lowest level in five years. >> susie: so is the slow growth
environment coming to an end, or is the u.s. economy still stuck in neutral? suzanne pratt reports. >> reporter: ann lenane has sold real estate in up and down markets, what she says about today's market might surprise you. >> the real estate market is hot. it is on fire. >> reporter: her read on real estate market makes sense given that home sales and new construction are recovering from their recent steep declines. and, some economists believe housing will replace manufacturing as a key growth driver this year. beyond the housing, the economy has recently been showing other signs of strength. retail sales and manufacturing activity were surprisingly strong in december. today, we learned that jobless claims are at a five-year low. on top of that the stock market, often considered a leading indicator of the economy hit a five-year high today. we're not talking about any old high, it's the highest level for the s&p 500 since before the
financial crisis. still, not all economists believe there's reason to celebrate, just yet. >> we've been looking for moderate growth in the economy and to us that looks like what we're getting. there are some components that are strengthening and some are softening but it still adds up to moderate growth economy in our view. >> reporter: still holding the recovery back are weak u.s. exports due to soft economies in europe and asia. on top of that, there are big concerns about how much consumers will cut their spending this quarter. that's as all americans adjust to smaller paychecks due to higher taxes. >> the hit to incomes are going to be a first quarter event for the most part, so much of that effect will be felt in the first quarter and it gradually dissipate in our view as the year wears on. >> reporter: so, what will it take for the economy to return to much stronger footing. many
say the answer lies with the housing market, which needs to built a stronger foundation. that brings us back to lenane and one of her listings. it's a five bedroom condo with river views. it can be yours for $4.75 million. >> to be able to get 3,100 square feet in manhattan is a real rarity, especially the bedroom count because people are really having families and staying in the city. and, this apartment really speaks to that. so that's why we've had such great traffic. >> reporter: traffic maybe, but will it sell? perhaps if the economy continues to show fresh signs of life. suzanne pratt, "n.b.r.," new york.
>> tom: disappointing. that describes the last quarterly financial performances from two of the country's biggest banks, bank of america and citigroup. bank of america's profits were cut by more than half compared to a year earlier, and citigroup earned a third less than what was expected, sending both stocks down. erika miller reports. >> reporter: investors weren't happy with citigroup's earnings, and neither was its c.e.o. >> we recognize that our net income today doesn't yet reflect the amount or caliber of earnings that our shareholders expect and our franchise is capable of. the company earned 69 cents a share in the fourth quarter, 30 cents more than a year ago. but that was far short of the 97 cents expected. >> reporter: citi's legal expenses rose sharply because of a settlement it and other banks reached last week with the government over illegal foreclosure practices. results at bank of america were also weighed down by that deal.
but an even bigger hit to of b. of a.'s earnings came from a settlement with fannie mae to end a dispute over bad home loans. the bank earned 3 cents a share in the period, a big drop from the 15 cents earned in the same period last year. c.e.o. brian moynihan tried to put a positive spin on today's results. >> our strategies continue to work, were seeing growth across all the core businesses. were seeing that momentum continue to accelerate. >> reporter: but for today, at least investors weren't convinced. erika miller, "n.b.r.," new york. >> susie: our next guest says citi and bank of america investors have to be prepared for a few more bumpy quarters. nancy bush is banking analyst at s.n.l. financial. so nancy when are all of these mortgage problem goesing to go away. here we are in 2013 and we're still hearing from these banks will problems with mortgages and settlements and chargeoffs. you know, how many more year
does we have to go through this or how many more quarters? >> well, i think that it is, indeed, a very frustrating issue for bank investors and bank analysts alike. i think if we are to judge by bank of america and as we know they were the most impacted by the foreclosure issues, we're about 75% of the way through the problem in its entirety. however, i think we will have dribs and drabs of these types of charges probably for the next several years, and certainly through 2013. >> well, that's pretty incredible. you know, we also are dealing with low-interest rate environment and the one thing that we heard from many banks big and small is that they are having a tough time making money on their loans because of these low-interest rates so is it possible we'll see a fresh round of cost-cutting and layoffs? >> well, i think all the banks large and small are involved in looking at their
cost on a microscopic level right now. and that's going to be ongoing. i think the biggest programs of cost control like one bac have already been announced. we probably will hear more from city sgroup i think through the year as michael core bet gets his hands on all the issues but cost-cutting is going to be a feature of banking from here on out. you mentioned michael core bit, he is the new c.e.o. at city, this is his first earnings report. i know there was a lot of interest in what he said on the analyst call. did he talk at all about his grand plan for city? >> not really. i mean he was pressed by several of the questioners to speak to the sort of broader strategic issues. you have to remember he's only been there since october. it's clear that his study of the company all the aspects of the company is ongoing. he said that he would speak to the broader issues and the big plan later on.
but i do think we saw a very, very different tone from him. he is very tough. he is very hands on. and it was a very different picture of city group than we've seen before. >> do you think he's the right man for the job? >> absolutely. he's got lots of banking experience, don't forget he's also got a chairman michael o'neill who's backing him up who is a cost-cutter and a very hands on manager as well so there's a new team in place there that is going to have a very different attitude. >> i know nancy you can't talk about specific stock but a lot of the bank stocks were down today even though the markets were up. now you think regional banks will do better than the big money center banks. tell us why you think that? >> well, the regional banks have their own set of issues. as you eluded to, the low-interest rate environment is providing huge pressure for net interest margins. however it's very clear that particularly the large
regionals, the bank like u.s. bank kopp, bb & t, p&c, phipps, third and wells fargo which i classify as a regional although a very large one, our moving market share. i mean they are seeing the lending volume that is sufficient to offset that net interest income or that net interest margin pressure, so you know i think that they just present a greater source of stability and american banking. bank of america and citigroup will work through their is issues over the next several years but they're to the going to be returning capital to shareholders, i think, at least until 2014. whereas the regional banks are already had their dividends established. they're able to grow them. they really are the stable banks in america right now. >> all right, we are going have to leave it there. do you have any disclosures to make about any of the banks we've discussed? >> i am an owner of u.s. bancorp, that's my only disclosure. >> okay. all right, great.
great information. thank you so much for come on the program. >> thank you. >> nancy bush of snl financials. >> tom: american airlines took time out today from its flight through bankruptcy re- organization, to take the wraps off a new look. the carrier unveiled a new logo and an updated look for its planes. it is the first exterior make- over in nearly 40 years. the planes will be silver with red, white and blue stripes on the tail. the new look comes as american awaits deliveries on 59 new planes this year, all of which will need to be painted with the new look.
>> susie: tough talk today from the new c.e.o. at barclays telling employees to get on board with the banks push to restore its reputation or get out. anthony jenkin-- jeungins took over the bank after last year's rate rigging scandal and in a memo to employees, he focused on a new push for values at the bank. highlighting respect, integrity, service, extension and stewartship. tom jenkins also said in the future staff pay packages will be mo closely lengthed to values and ethics in an effort to not repeat past mistakes. sounds like he is spending time with warren buffett. >> tom: he talked about banking become too aggressive and too disconnected from all of its stakeholders and clearly barclays has suffered under the scandal not only with banking but also with the interest rate rigging scandal that we saw last year. so certainly one to watch there. as it moves forward. >> and this might set a good example for other banks and other corporations that have
been questioned about trust worthiness to restore confidence. >> absolutely, some confidence certainly on wall street today with the markets continuing to climb in some kenses multiyear highs. encouraging economic data pushing the s&p 500 up to fresh five year highs. the s&p 500 showed steady buying interest through the mid- afternoon before the gains moderated in the final 90 minutes. still, the 0.6% gain is enough for the index to close at its highest level since 2007. volume picked up from yesterday's pace. 708 million shares on the big board. just under 1.8 billion on the nasdaq. the consumer discretionary sector led the way, up 1.1%. the industrial sector gained 1%. and health care up 0.8%. earnings were squarely in focus after the closing bell with intel. the semiconductor giant turned in better than expected earnings but down from a year ago. intel's biggest business unit by sales, it's p.c. group saw revenues fall 6%. as consumers have shifted buying habits to tablets and
smartphones, it has hurt the traditional computer business. before the news, intel stock climbed 2.6% during the regular session. shares were at their highest price since october. it's outlook for sales this year was slightly below what wall street analysts anticipated. shares were down about a half percent in extended hours trading. it won't hurt operating results but higher than expected subsidy force the smart phones sold over the holidays and damage from superstorm sandy will. shares have been trading near 6 month low os falling practice before tonight's warning, they fell another 1% from this closing price and extended hours trading. leading the consumer sector was media giant c.b.s. it wants to get out of the outdoor billboard business. it plans on converting its outdoor ad business in north and south america into a real estate investment trust, and selling off the same business in europe and asia. the news fueled a rally in c.b.s., as well as, in two of
its billboard competitors. c.b.s. shares jumped 7.9% on heavy volume to a new 52 week high. clear channel outdoor gained 6.8%. lamar, which also is converting to a real estate investment trust, rose 2.3%. home builders were strong thanks to the strong increase in new home construction in december. pulte group rallied 5.3% closing over $20 per share for the first time since the summer of 2007. news of more homes being built helped home improvement retailers home depot and lowe's. home depot is less than a dollar away from a new multi-year high. lowe's close at $37 is an all time high. in addition to the less than impressive earnings from citi and bank of america we reported on earlier, capital one turned in disappointing results after the closing bell. credit card company capital one pledged to "return to a meaningful dividend" this year. but that did not quell concerns after earnings came up well short of estimates. the company reversed higher finance charges and fees for more customers, leading to lower revenues. the stock was down a fraction before the earnings report. it was at a 52 week high last week, but shares fell more than
5% in after hours trading, falling below $59 per share. but two regional bank stocks rallied. the cincinnati-based fifth third rose 4.8% to a new 52 week high. earnings were better than forecast. same story at pittsburgh-based p.n.c. financial, which rallied 3.7%. four of the five most actively traded exchange traded products were higher. the financial sector fund was the lone loser of the group, falling a fraction. and that's tonight's "market focus."
>> susie: if you stumbled with a money making decision last year, and are striving to do better in the new year, use it as a teaching opportunity. in tonight's kids & cash, boosting your kids' financial i.q., while building your own better money habits. here's neale godfrey from the children's financial network. >> we made it into 2013. it's a great time to look back at all your money mistakes you've made with your kids and resolve to change them in 2013! decide where you've been before you can know where you're going. have all family members track every penny of spending for a week and come clean with each other. now set goals together and agree upon what each of you can snip from your spending list. a year of designer coffee could mean saving enough money for a summer vacation. pick your biggest goal, maybe
saving for college. take a picture of your youngster in a cap and gown and put it in your wallet next to your credit card. this will be a gentle reminder when the new gadget calls out to you in the mall. happy new year! i'm neale godfrey. >> tom: tomorrow on "n.b.r." from higher food prices to smaller paychecks, how is whole foods holding up? we ask c.e.o. john mackey. and our friday "market monitor" guest says now is not the time to get too aggressive with your investments. he's glenmede investment's jason pride. >> susie: and monday on "n.b.r.," we take a special look at u.s. innovation. will america be able to keep its competitive edge, through new technologies and entrepreneurship? what better place to answer that question that at i.b.m.'s watson research center. bernie meyerson calls himself i.b.m.'s "chief geek," and leads the firm's efforts on
innovation. >> innovation determines whether a large corporation, a small corporation, a startup or an entire society survive. it's that simple. the most direct attribute you can give to a thriving entity, i don't care what scale it is small, medium, large, enormous, is innovation. the reason is fundamentally to not only see the future, but to drive it. >> susie: join us monday for our look at u.s. innovation. it's our special martin luther king junior holiday edition. and, there's more to learn about innovation, on the "n.b.r." website. "nbr-u" has research from harvard on competitiveness topics. it explores the tendency for firms to focus on what's worked in the past, rather than on the needs of the future. just head to: www.nbr.com and look for the "nbr-u" tab.